They Will Move If Services Are Available

In the World Bank, we recently did a report titled Bangladesh: Towards Accelerated, Inclusive and Sustainable Growth—Opportunities and Challenges. For this study, we did a survey of 1,000 garment firms to get their perspectives on the drivers and obstacles to urban competitiveness. I report below some key findings from the survey presented in the growth report.

Dhaka City is still the most productive location for garment firms in Bangladesh. Access to markets and a relatively better quality of power supply are Dhaka city’s main comparative advantages. Dhaka has the best-performing city locations for access to skilled labor and power supply––the two factors garment firms’ value most when deciding on location––proximity to suppliers, sub-contractors, machine-repair technicians and support businesses.

Dhaka is falling behind other locations in accessibility and, for some firms, Dhaka city’s costs have started outweighing opportunities. Dhaka is the worst-performing location for urban mobility and access to the highway. Firms in the city also are disadvantaged in access to the port and airport, compared to those located in Chittagong city. Both firms and workers located in Dhaka also struggle with limited availability and high prices of land and housing.

The high productivity of the garment workforce in Dhaka city has not led to better living conditions for production workers. Garment workers in Dhaka city live in an urban environment, characterized by over-crowding and lack of amenities, and have significantly lower access to housing and services than the average Dhaka urban dweller or garment workers in Chittagong and Dhaka’s peri-urban areas. Dhaka city has the highest share of urban-related inefficient worker turnover (defined as the separations caused by unhealthy urban environment, rather than by more-competitive job offers). Housing availability is cited by workers as the main reason for “urban-related” separations in Dhaka city, followed by high cost of living.

Inadequate access to land and transport infrastructure in Dhaka city is the leading cause of firm relocation to the peri-urban areas. The birth of new garment firms, rather than relocation, is driving peri-urbanization. However, of the firms that have relocated, about half did so mainly to gain better access to transport infrastructure and avoid Dhaka’s congestion. Another 25 percent of firms relocated because of high costs and limited availability of land, buildings and housing in Dhaka city. Peri-urbanization is associated with the growth of a more competitive, vertically integrated business model in the garment sector. Peri-urban garment firms are more land-intensive and more likely to be vertically integrated than garment firms in Dhaka city. Younger firms are opting for a consolidated, vertically integrated business model, which has significant advantages for international competitiveness.

Peri-urban areas benefit from proximity to Dhaka city, have comparative advantage in accessibility to land and housing, but suffer from the city’s congestion, and lack infrastructure. Peripheral municipalities are performing as well as Dhaka city in access to skilled labor, suggesting that they benefit from proximity to the city. Peripheral rural areas are, however, less competitive than Dhaka city in access to markets––particularly in proximity to buyers, suppliers, sub-contractors, competitors and support businesses. Peri-urban areas have a significant advantage in land and housing, urban mobility and access to a highway, compared to those in the city. However, firms located in peri-urban areas suffer indirectly from the city’s high congestion, and from lower access and quality of infrastructure and services.

Chittagong city has a disadvantage in access to markets, but an advantage in transport accessibility, land and housing. Chittagong is a low-productivity, low-cost garment production center compared to Dhaka city. Chittagong is less competitive than Dhaka in access to markets, in particular access to skilled labor––the factor garment firms value most––proximity to suppliers and support businesses. Chittagong city is ranked by garment firms as the best-performing location for availability and cost of land, buildings and housing for workers. It also has a marked comparative advantage in accessibility to port, airport, highway and urban mobility. However, Chittagong has one of the most inefficient ports in Asia. The Chittagong port is identified as the main factor negatively affecting lead time in the industry––averaging about 88 days among the surveyed firms, compared to 40-60 days in China and 50-70 in India.

Medium- and small-size cities are uncompetitive “distant places”. Access to markets, in particular skilled labor, is cited by garment firms as the main disadvantage in medium and small cities. Contrary to the very successful EPZs in Dhaka and Chittagong, the EPZs located in “distant locations” have not succeeded in attracting garment firms. The failures of EPZs outside Dhaka and Chittagong is partially explained by the “path dependency” of garment firms’ location choices. Only 10 percent of the sampled firms relocated to a different location. Of the firms that did relocate, none moved to another city.